01:220:102 Lecture Notes - Lecture 13: Marginal Cost, Longrun, Average Variable Cost

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12 Oct 2017

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Average cost: total cost divided by the quantity of output produced. Tells the producer the average cost of producing one unit of a good or service. U-shaped average total cost curve falls at low levels of output, then rises at higher levels. Average fixed cost: the fixed cost per unit of output. Average variable cost: the variable cost per unit of output. Average fixed cost falls as output increases because the cost is spread among more units. Average variable cost increases as output increases because of the diminishing returns effect. Average total cost is in a u shape because afc and avc go in opposite directions as output increases. The spreading effect: the larger the output, the greater the quantity of output over which fixed cost is spread, leading to lower average fixed cost. The diminishing returns effect: the larger the output, the greater the amount of variable input required to produce additional units, leading to higher average variable cost.

Related Questions

Why does the short-run average total cost (ATC) curve of a firm tend to be U-shaped?

a) larger firms always have lower per-unit costs than smaller firms.

b) at low levels of output, AFC will be high, while at high levels of output MC will be high due to diminishing returns.

c) diminishing returns will be present when output is small, and high AFC will push per unit cost to higher levels when output is large.

d) diseconomies of scale will be present at both small and large output rates.

harlequinlouse1

constant costs

increasing returns to scale

constant returns to scale

isocost curve

decreasing returns to scale

isoquant

diseconomies of scale

long-run average cost

economies of scale

long-run marginal cost

economies of scope

marginal rate of technical substitution

expansion path

short-run expansion path

___A curve that displays all the various combinations of inputs that will produce a given amount of output.

___The rate at which one input is substituted for another along an isoquant.

___Line that shows all the possible combinations of inputs that can be purchased for a given total cost.

___A curve showing all of the cost-minimizing levels of input usage for various levels of output.

___When the usage of all inputs is increased by an equal proportionate amount, output ___increases by exactly the same proportion.

___When the usage of all inputs is increased by an equal proportionate amount, output increases by a larger proportionate amount.

___When the usage of all inputs is increased by an equal proportionate amount, output increases by a smaller proportionate amount.

___Cost per unit in the long run.

___The change in long-run total cost per unit change in output.

___When long-run average cost falls as output increases.

___When long-run average cost increases with increases in output.

___Long-run average and marginal costs are equal for all levels of output.

___The situation in which the joint cost of producing two goods is less than the sum of the separate costs of producing the two goods.

___Horizontal line showing the cost-minimizing input combinations for various output levels when capital is fixed in the short run.

aquamarineguinea-pig889

36) A firm encountering economies of scale over some range of output will have a:

a) rising long-run average cost curve.

b) falling long-run average cost curve.

c) constant long-run average cost curve.

d) rising, then falling, then rising long-run average cost curve.

37) When a firm doubles its inputs and finds that its output has more than doubled, this is known as:

a) economies of scale.

b) constant returns to scale.

c) diseconomies of scale.

d) a violation of the law of diminishing returns.

38) The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of:

a) economies of scale.

b) normative economies.

c) diminishing marginal returns.

d) an increasing marginal product of labor.

39) If all resources used in the production of a product are increased by 20 percent and output increases by 20 percent, then there must be:

a) economies of scale.

b) constant returns to scale.

c) diseconomies of scale.

d) increasing the average total costs.

40) Economies and diseconomies of scale explain why the:

a) short-run average fixed cost curve declines so long as output increases.

b) marginal cost curve must intersect the minimum point of the firm's average total cost curve.

c) long-run average total cost curve is typically U-shaped.

d) short-run average variable cost curve is U-shaped.

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01:220:102 Lecture Notes - Lecture 13: Marginal Cost, Longrun, Average Variable Cost

01:220:102 Full Course Notes

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